What is Corporate Tax in UAE?
Corporate tax in UAE also referred to as “Corporate Income Tax” or “Business Profits Tax” is a form of direct tax levied on the net income or profits of corporations and other entities derived from their business.
Except for the extraction of natural resources, which will continue to be subject to Emirate-level corporate taxation, UAE Corporate Tax will apply to all enterprises operating in the UAE. Only those foreign organizations and people who regularly conduct trade or business in the UAE will be liable for Corporate Tax.
All types of profits and other (net) income reflected in the financial statements prepared in accordance with generally accepted accounting principles shall be subject to UAE Corporate Tax on an equal basis.
Effective Dates of Corporate Tax in UAE
The Corporate Tax in UAE will be applicable for financial years starting on or after 1 June 2023.
Any business or company that adopts a calendar year that begins on January 1, 2023, and ends on December 31, 2023, will be subject to corporate tax beginning on January 1 of the following year (i.e., 2024), and filing will probably be required in the middle of 2025.
Key Features of Corporate Tax
- Income from employment, real estate, stock investments, and other sources of personal income unrelated to a UAE trade or business will not subject individuals to corporation tax.
- No corporate tax will be applicable to foreign investors who do not conduct businesses in the UAE
- Corporate tax will be applicable on the adjusted accounting net profit of the business
- Businesses in free zones that adhere to all regulations are still eligible for corporate tax benefits.
- Natural resource extraction will continue to be subject to corporate taxes at the Emirate level.
- No withholding tax will be applicable on domestic and cross-border payments
- No corporate tax will be applicable on capital gains and dividends received by a UAE business from its eligible shareholdings
- No corporate tax will be applicable on qualifying intragroup transactions and restructurings
- Foreign tax will be allowed to be credited against UAE corporate tax payable
- Businesses will be able to take advantage of generous loss transfer and utilization laws.
Rates of Corporate Tax in UAE
UAE Corporate Tax regime introduces a tier system with 3 rates:
- All annual taxable profits that fall under AED 375,000 shall be subject to zero rates.
- All annual taxable profits above AED 375,000 shall be subject to a 9% rate.
- ALL MNEs that fall under the scope of Pillar 2 of the BEPS 2.0 framework (i.e., consolidated global revenues in excess of AED 3.15 billion) shall be subject to different rates as per OECD Base Erosion and Profit-Sharing rules.
Exempted Income from Corporate Tax
In general, the following income shall be exempted from income tax:
- Dividends received by a UAE-based corporation from its admissible shareholdings (to be defined in the law)
- Capital gains
- Profits from group reorganization
- Profits from Intra-group transactions
UAE withholding tax will not apply to domestic or international payments. Regarding the exempt income scheme, it can be predicted that the Law will include a participation exemption or other similar concepts often seen in international markets, and businesses will need to assess their ability to satisfy any applicable requirements in order to take advantage of the exempt income scheme.
Why does the UAE introduce a corporate tax?
Corporate taxes that are imposed in accordance with worldwide best practices strengthen the UAE's position as a major international hub for trade and investment and hasten the nation's growth and transformation to meet its strategic objectives. The state's dedication to upholding worldwide standards for tax transparency and preventing tax evasion tactics is renewed with the introduction of the corporate tax.
Is the UAE the first country to introduce corporate tax?
Most nations in the globe, including most members of the Cooperation Council for the Arab States of the Gulf, have extensive corporation tax systems.
When will corporate tax become effective in the UAE?
Corporate tax will apply in the country for fiscal years beginning on or after June 1, 2023
Will corporate tax be applied to businesses in every emirate?
Since corporate tax in the UAE is a federal tax, it will be imposed on all emirates.
What is the role of the Federal Tax Authority in Corporate Tax?
The Federal Tax Authority in Corporate Tax is for the purposes of bilateral or multilateral agreements and the international exchange of information for tax purposes.
Will businesses established in free zones be subject to corporate tax in the country?
Businesses established in free zones will be subject to corporate tax in the nation. However, the corporate tax system in the nation will continue to offer the corporate tax incentives currently provided to businesses established in free zones that comply with all legal requirements and do not conduct business in the UAE's main territory.